Kiss Off, Groupon: Square Rethinks 'Loyalty'

We’ve all got our local haunts. There’s the places we frequent for coffee, the go-to joint for a good haircut, or our favorite dive for a quick beer on the way home from work. Like any good standby, the shop owners know who we are, recognizing us on sight. Perhaps they’ll float the occasional tab, or comp a free drink now and then. It’s the classic way for a small business to grow, getting to know their customer base and cultivating loyalty.

Square knows how this works. Square wants to know you.

Square-adopting merchants can now define their own “regulars” with a new application update announced Tuesday, allowing merchants the ability to recognize their most loyal repeat customers and reward them accordingly.

The update incorporates Square’s most recent refresh of its Card Case app, relying on the new “geofencing” technology included in Apple’s recent iOS 5 release. Once a Card Case-carrying customer enters the shop, the merchant’s Square software recognizes the customer by his or her existing “tab,” a profile created specifically to track that customer’s purchase history at the store. In other words, I walk into the store, my tab pops up on the store’s screen, and the cashier greets me with an enthusiastic “Hi Mike! Welcome back!”

From there, the merchant can see how many times the customer has visited and how much money they’ve spent. The merchant can then use that info to define a “regular.” So if I break the set threshold of visiting a cafe, say, 10 times, a merchant can deem me a regular and start offering me freebies.

Essentially, it’s the antithesis of a Groupon. The daily deals approach pioneered by the Chicago-based Groupon is more like a shotgun, attracting customers with a daily e-mail blast. The participating business then hopes any of those new visitors can be converted into repeat customers. Square’s approach flips the Groupon philosophy on its head; the business targets an existing customer base, those walk-ins who choose to come in without the incentive of a coupon.

Though Groupon may not even be Square’s biggest worry. Google’s Wallet app — despite being far from a complete and finished payment system — incorporates its own type of loyalty program, tailored to automatically apply rewards when a customer spends money at participating businesses. Google also ties in its Groupon Clone — Google Offers — applying any discounts to the purchase with a simple wave of the NFC-enabled device. That said, there aren’t many NFC-enabled devices, and ramping up that ecosystem would require lots of hardware changes anc cooperation from lots of device manufacturers — unlike the approach Square is taking.

And of course, despite any financial scrutiny it faced in the days leading up to its IPO, Groupon is still going strong. As is Groupon’s main competitor, LivingSocial.

Square’s main criticism of its competition, however, involve the level of complication on the infrastructure side. Google Wallet terminal installation is time consuming and potentially pricey, and lacks the human element that Square’s so-called “organic” transactions entail. Daily deals programs are also problematic in that while they may attract initial waves of customers, profiling repeat business isn’t as readily possible — which is where Square’s Card Case “tab” profiles come into play.

“Just as we’ve removed the mechanics of the transaction, we’ve removed all the friction of loyalty programs,” Quinn said.

Groupon and LivingSocial also lack the plan of attack taken by Square and Google: Point-of-sale payments integrated with loyalty-based programs. While daily deals may have the customer base, Square and Google could disrupt in a big way if they can truly scale. Google obviously has the scale advantage here, though Square claims 800,000 customers have used its product in the past year, so it’s well on its way to market penetration.

Further, Square’s update integrates the app into existing brick-and-mortar infrastructure. Merchants can now use the Square Register app in conjunction with their cash register (provided they’re using the properly supported hardware, of course). So now, instead of only providing digital receipts, businesses can also print out physical receipts.

The updated app is freely available for both Android and iOS, and can be found in the Android Market and Apple’s App Store.